Widen tax base for added revenue, accountants tell state

Institute of Certified Public Accountants of Kenya (ICPAK) members led by Chairman CPA Philip Kakai and Member Erustus Kaka present their submission during the public hearing on Tax before the National Assembly Finance and National Planning Committee at Hilton Gardens Hotel in Nairobi. [Boniface Okendo, Standard]

The National Treasury should expand the number of taxpayers and abandon its current strategy of targeting a small pool.

Failure to broaden the tax base has caused the Kenya Revenue Authority (KRA) to consistently miss revenue targets. Meanwhile, the small group of taxpayers is ="https://www.standardmedia.co.ke/opinion/article/2001470656/msmes-key-to-states-plan-to-expand-the-tax-base">overburdened and struggling< to make ends meet.

According to the Institute of Certified Public Accountants of Kenya (Icpak), the Treasury has been increasing or adding new taxes for the few already in the tax bracket, avoiding the majority of individuals and companies.

“Kenya has continued to place reliance on a small pool of taxpayers, largely drawn from the formal sector,” said Icpak when it made submissions before the National Assembly’s Committee on Finance and National Planning that commenced public engagements on the Finance Bill 2024 yesterday. 

The accountants' body, citing numbers by KRA, noted that only 6.3 million taxpayers, including corporate entities, filed their 2022 tax returns by June 30 last year. 

“This implies that out of a population of about 52 million people, about 15 per cent of the population is contributing to income tax. As such, the tax burden is not shared fairly as envisaged under Article 201(b)(i) of the Constitution.

“Further, the increased deductions on ="https://www.standardmedia.co.ke/business/business/article/2001416665/how-the-taxman-can-help-expand-kenyas-tax-base">the gross emoluments< of salaried employees continue to reduce the disposable income on this segment of Kenyans, exacerbating the cost of living and negatively impacting demand and indirect tax revenues. Not only has this resulted in tax fatigue for this pool of taxpayers, it also contravenes the tax maxim of equity and fairness," said Icpak.

The accountants also noted that the government needed to seal revenue leakages and avenues of corruption that result in tax collected not offering value to Kenyans.

“Revenue leakages, corruption and misappropriation of resources leads to the destruction of taxpayer morale and tax apathy. Such revenue losses also make it difficult for the government to provide essential services commensurate with the taxes that Kenyans pay. 

“Revenue leakage is caused by various reasons such as complicated tax systems, discretionary power on exemptions, as well as a dampened morale to pay taxes occasioned by the culture of corruption.

As the government strives to ="https://www.standardmedia.co.ke/financial-standard/article/2000059668/kra-s-unending-task-of-widening-tax-base">enhance collection through taxes<, the citizenry are worried about commensurate service delivery. The Institute urges all public sector players to enhance prudent utilisation of public resources, enhance accountability and openness,” the accountants said.

Icpak further recommended a review of the penalty system on tax evasion, developing a change management strategy to address income tax matters and leveraging a simplified technological solution to enhance integration of taxpayer information systems.

The accountants also want the government to implement a national tax policy, which would bring about a stable tax environment and reduce instances of frequent changes in certain taxes.

“The Institute reiterates its concern that frequent changes to tax laws violate the canon of taxation and principles of certainty and simplicity. The more changes that are made, the greater the difficulty taxpayers, investors, practitioners and government tax administrators have in complying with and understanding the tax consequences of transactions. Also, it becomes more difficult for tax agencies to issue guidance in a timely manner when there are hundreds of tax law changes every few years,” said Icpak.

The accountants also rejected the proposed motor vehicle tax, and the introduction of value-added tax on bread.